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by Aaron
July 16th, 2012, 11:03 pm
Forum: Student Forum
Topic: VaR Fund of Funds
Replies: 13
Views: 12536

VaR Fund of Funds

<t>It cannot be done with the data you have, it would only be misleading.The best approach I can think of (and it's not very good) is to look at the losses from the fund categories during bad periods, adjust for the volatility of your funds, and add some idiosyncratic risk.For example, if an index o...
by Aaron
March 1st, 2012, 8:41 pm
Forum: Student Forum
Topic: Calculating VaR on a Bond Portfolio
Replies: 13
Views: 16855

Calculating VaR on a Bond Portfolio

<t>It is very difficult to compute VaR of an illiquid portfolio, and it's not even clear what it means. However, it seems likely that almost all of your left tail will be from interest rate movements rather than sudden credit events. Assuming your corporate portfolio is reasonably high-quality and w...
by Aaron
January 7th, 2012, 10:31 pm
Forum: Student Forum
Topic: On tuckman's 3rd edition: is the regression equation correct?
Replies: 3
Views: 16278

On tuckman's 3rd edition: is the regression equation correct?

<t>The nominal yield equals the real yield plus expected inflation. Therefore the Beta of either a level regression or a difference regression would be 1 except for any relation between expected inflation and real rates.If you believe changes in inflation expectations are related to changes in real ...
by Aaron
January 7th, 2012, 3:09 pm
Forum: Student Forum
Topic: ACF real or not?
Replies: 3
Views: 15029

ACF real or not?

<t>If you have a negative autocorrelation at lag one with financial prices, it's usually due to mismeasured prices. If you have a positive error in the price at today's close, you will have a positive error in today's return and a negative error in tomorrow's (you use two day returns, but the princi...
by Aaron
November 1st, 2011, 10:41 pm
Forum: Student Forum
Topic: When to exercise an American option before expiration?
Replies: 8
Views: 17810

When to exercise an American option before expiration?

<t>Yes, the option price should be greater than or equal to the intrinsic value. But if it optimal to exercise immediately then the price will equal the expected value. The decision whether to see in the market or exercise will be based on transaction costs. Generally if you want to keep the positio...
by Aaron
November 1st, 2011, 10:37 pm
Forum: Off Topic
Topic: Chicago Random Walkers
Replies: 3
Views: 189727

Chicago Random Walkers

Are there any Chicago Random Walkers? I'm in town November14-16 for the Global Derivatives conference. Anyone want to meet up for drinks somewhere?
by Aaron
November 1st, 2011, 10:35 pm
Forum: Off Topic
Topic: New York Wilmotters Meet for Drinks
Replies: 393
Views: 214558

New York Wilmotters Meet for Drinks

I've been to three of them myself, and I live in New York. All you have to do is start a thread and see what you can get.I'm thinking of coming over myself March 20-23, 2012 for the Risk Annual Summit. Maybe we can do it then if nothing can be arranged earlier.
by Aaron
November 1st, 2011, 5:51 pm
Forum: Student Forum
Topic: When to exercise an American option before expiration?
Replies: 8
Views: 17810

When to exercise an American option before expiration?

<t>An option involves the exchange of one asset for another. It's true that the option has non-negative value, so the only reason to exercise early is the difference in value from holding the two assets is greater than the time value. The most common textbook example is when you have an in-the-money...
by Aaron
November 1st, 2011, 5:46 pm
Forum: Off Topic
Topic: New York Wilmotters Meet for Drinks
Replies: 393
Views: 214558

New York Wilmotters Meet for Drinks

<t>Anyone up for drinks in the Columbia area tomorrow? I'm giving a talk and we could go out afterwards. Risk SeminarColumbia University, 1255 Amsterdam Avenue, Room 903 SSW, 9th FloorOrganizers: Olympia Hadjiliadis, Gerardo Hernandez-del-Valle, Hongzhong ZhangWednesday, Nov 2 4:10 - 5:25 PMSpeaker:...
by Aaron
October 27th, 2011, 12:08 am
Forum: Student Forum
Topic: Poisson distribution
Replies: 11
Views: 17267

Poisson distribution

<t>You are correct that you do not need to know much about the Poisson, only that its minimum value is zero.If you put S0 in the risk-free account, you end up with 3*S0.If you put S0 in the stock you end up with 1 37% of the time and more than 1 63% of the time.If S0 <= 1/3 you can form an arbitrage...
by Aaron
October 27th, 2011, 12:02 am
Forum: Student Forum
Topic: Asset Swap Spread, CDS Spread and Z-Spread
Replies: 7
Views: 19186

Asset Swap Spread, CDS Spread and Z-Spread

Do you want definitions or data?
by Aaron
October 13th, 2011, 9:54 pm
Forum: General Forum
Topic: Definition of a Variable Notional Swap and its uses
Replies: 10
Views: 22903

Definition of a Variable Notional Swap and its uses

<t>I have heard the term used only in a different sense.A customer wants to trade something actively, say the 2 year/10 year yield spread. Instead of writing new OTC swaps for each trade, the dealer creates a shell swap. The customer can change the notional at any time, even reversing direction. Eac...
by Aaron
October 13th, 2011, 9:45 pm
Forum: General Forum
Topic: Civil war in USA and potential new independent estates
Replies: 33
Views: 23123

Civil war in USA and potential new independent estates

<t>Secret2's middle map is the only realistic one.How about instead of secession, there is a mass movement to limit federal power and the US becomes more of a federation than a nation? This could be accelerated if the dollar hyperinflates and some states default, so other states start printing their...
by Aaron
October 12th, 2011, 8:43 pm
Forum: Student Forum
Topic: VAR analysis
Replies: 5
Views: 19639

VAR analysis

<t>Value-at-Risk is extremely useful.Vector Autoregression is not. It was no worse than the large structural models it replaced, but no better. It has never been shown to give useful predictions. The problem is too many parameters to fit. With k parameters and l lags, you need to fit k^2*l coefficie...
by Aaron
October 12th, 2011, 8:31 pm
Forum: Student Forum
Topic: implied vol near expiry
Replies: 3
Views: 17233

implied vol near expiry

<t>Bearish is correct. First check if the option price is greater than its intrinsic value. If so, assign a Delta of 1 or -1 and zero for the other Greeks. There are other ways to deal with this, but this is the simplest.If the option price is greater than the intrinsic value but your algorithm is n...
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